The Strategy Helping Boost Returns for Singapore State Fund GIC

  • Singapore's state fund acts as anchor investor in bond issues
  • CIO speaks in interview with Sovereign Wealth Center

Acting as a cornerstone investor in bond deals is helping GIC Pte boost returns on its fixed-income portfolio as yields persist near record lows and risks start to increase in the bond market, according to Singapore’s sovereign-wealth fund.

Companies that issue bonds directly to GIC when it acts as an anchor investor save on underwriting fees and part of those savings are passed on to the wealth fund, Chief Investment Officer Lim Chow Kiat said in an interview with the London-based Sovereign Wealth Center published Tuesday.

“Maybe we’re aware that a company needs ‘x’ billion for its capital expenditure, so we do almost an investment banker’s job,” Lim said. “The whole process helps us to understand the company better and to build a good relationship.”

GIC is turning to such strategies as interest rates in markets such as the U.S. and Europe are at record lows and buyers of government bonds in developed economies lost 2.9 percent this year, according to the Bloomberg Global Developed Sovereign Bond Index. The three risks in the fixed-income market are the possibility of higher inflation, large redemptions from bond funds that could spur a market selloff, and policy errors -- although the probability of those risks are low, Lim said.

Brazil, India

GIC’s share of bonds and cash was 37 percent as of March 31, according to its latest annual report published in July. 

Lim said that GIC is optimistic about investments in Brazil and India as industries like health care, financial services, travel and consumer benefit from the growth of the middle class.

GIC recently increased its holdings in Brazil’s biggest hospital chain Rede D’Or Sao Luiz SA, adding to investments in the country. In India, it got approval this year from authorities to acquire a 4.99 percent stake in Bandhan Bank through an affiliate company. It also acquired 39.2 percent in property developer Nirlon Ltd. and is an investor in online retailer Flipkart.

GIC is the world’s sixth-biggest sovereign wealth fund and manages $343 billion of assets, according to an estimate by the Sovereign Wealth Center. The fund, which doesn’t disclose annual returns, reported a 4.9 percent annualized real rate of return for the 20 years to March 31, from 4.1 percent in the 20 years that ended in March 2014.

The interview is the second part of a conversation the Sovereign Wealth Center had with Lim at the beginning of November. The first part was published last week.

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